March 14, 2016 / 3:52 AM / 3 years ago

China Vanke brings in Shenzhen Metro as 'white knight' in up to $9.3 billion deal

HONG KONG (Reuters) - China Vanke Co Ltd, the mainland’s biggest property firm, signed a deal worth up to $9.3 billion that could make subway operator Shenzhen Metro Group its biggest investor, intensifying a battle for control between Vanke’s management and biggest current shareholder, financial conglomerate Baoneng.

China Vanke President Yu Liang attends a news conference following the company's annual results in Hong Kong, China March 14, 2016. REUTERS/Bobby Yip

The deal, which sent Vanke shares 14 percent higher, comes as China developers splash out to try to beat a rise in land costs that has fueled concern among Beijing government officials that a bubble may be forming. China Overseas Land & Investment Ltd on Monday separately agreed to buy conglomerate CITIC Ltd’s residential China properties for $4.8 billion.

Under a preliminary accord, Vanke said on Sunday it would acquire Shenzhen Metro’s property projects, mostly atop subway stations in the booming tier-one city. In return Vanke would fund the deal mainly by issuing new shares worth up to 60 billion yuan ($9.25 billion) to Shenzhen Metro, making the state-owned firm its ‘white knight’.

If fully subscribed, the deal would give Shenzhen Metro around 20 percent of total Vanke shares including those newly issued. That would surpass privately owned Baoneng, which didn’t respond to calls seeking comment, diluting a stake of more than 20 percent the insurance and investment giant acquired in Vanke last December, igniting the spat with management.

“We haven’t bought one single plot of expensive land (last year), because we have been raising our land acquisition ability such as through M&A, land redevelopment,” Vanke vice president Tan Huajie in a news conference on Monday after it announced the deal and a 13 percent rise in profit last year.

Tan said property prices atop metro stations are usually more stable than other developments. But he said he expected land prices in major cities, already at record levels, will continue to rise this year.

Vanke president Yu Liang declined to confirm whether the subway operator will become its largest shareholder, or whether it was in communications with Baoneng about this deal.


Vanke shares in Hong Kong jumped as much as 14.4 percent on Monday as investors welcomed the deal, which would fold Shenzhen Metro developments above 10 subway stations into Vanke’s portfolio and is subject to overall shareholder approval. The shares were up 10 pct at market close.

“Given the location of the asset and the low historical land cost, we believe the transaction should be most likely net asset value-accretive for Vanke,” said Credit Suisse analyst Jinsong Du.

“We also expect this potential transaction to lead to further collaboration between Vanke and Shenzhen Metro. Because Shenzhen is developing more metro lines, we expect Shenzhen Metro to gain access to more land above metro stations, potentially developing some of them with Vanke as well.”

Vanke previously said it was talking to several potential cooperation partners, without disclosing names, as it sought to remould its operations in the wake of Baoneng becoming a major but uninvited shareholder.

But on Monday Vanke said it has dissolved a partnership with China’s largest commercial developer, Dalian Wanda Group, a tie-up formed last May to jointly acquire land and develop real estate projects. Vanke cited disagreement on certain commercial terms without providing details.

Vanke said separately on Sunday its core profit rose 13 percent last year to 17.6 billion yuan, a new record, helped by the resurgence in China property sales that has stoke concern in Beijing about a prospective real estate bubble.

Editing by Kenneth Maxwell

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